Costing a shoe selling business

Profit 3,600 pounds
Break Even Analysis:
The break even analysis is performed on the basis of assessment of costs based upon the number of units that are expected to be sold.(www.connection.cwru.edu). Similarly, the total sales revenues are also computed on the basis of anticipated units that are expected to be sold each month. The variable costs per unit is 77.84 pounds and the number of units expected to be sold is roughly assessed as in the range of 50 to 70 pairs of shoes a month. The average unit sale price for each show is taken as $121.42.
The Break even analysis table is shown below:
BREAK
EVEN ANALYSIS
TIME PERIOD
TOTAL FIXED COSTS
TOTAL VARIABLE COSTS
TOTAL SALES REVENUES
2 months
$5,500
$8,096
$6,313.84
4 months
$5,500
$6,227
$9,713.60
6 months
$5,500
$6,616
$10,320.70
8 months
$5,500
$9,341
$14,570.71
10 months
$5,500
$8,562
$13,356.20
12 months
$5,500
$10,586.24
$16,513.12
18 months
$5,500
$9,496.48
$14,793.18
24 months
$5,500
$10,117.90
$15,784.60
30 months
$5,500
$10,584.88
$16,513.12
36 months
$5,500
$11,052
$17,241.64
Hence, from the table, it may be noted that the break even point is reached after ten months from the time the business begins operating. This is the time when the profits in the amount of $13,356.20 exceed the sum of the fixed and variable costs ($5500 +$8562 = $14,062). Hence this is the point where the business has first begun to show profits in that the revenue from sales is greater than the total expenses on fixed and variable costs. At this point, 110 units of shoes have been sold in a two month period, which brings it to an average of 55 pairs of shoes sold per month.
Margin of Safety:
The margin of safety is used to calculate how much the level of sales can…
Similarly, the total sales revenues are also computed on the basis of anticipated units that are expected to be sold each month. The variable costs per unit is 77.84 pounds and the number of units expected to be sold is roughly assessed as in the range of 50 to 70 pairs of shoes a month. The average unit sale price for each show is taken as $121.42.
Hence, from the table, it may be noted that the break even point is reached after ten months from the time the business begins operating. This is the time when the profits in the amount of $13,356.20 exceed the sum of the fixed and variable costs ($5500 +$8562 = $14,062). Hence this is the point where the business has first begun to show profits in that the revenue from sales is greater than the total expenses on fixed and variable costs. At this point, 110 units of shoes have been sold in a two month period, which brings it to an average of 55 pairs of shoes sold per month.
Margin of safety = Expected Sales level – Break even sales level. The break even sales level that has been established by the above table is 55 pairs of shoes per month. Therefore, if the expected sales per month is 70 pairs of shoes, the sales figures can fall even up to 55 pairs of shoes and the business will break even. However if the volume of shoes sold should fall below 55 pairs, then it is likely that the business will experience a loss.
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